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Euro zone gets GDP boost
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June 14, 1999: 10:29 a.m. ET
Economies of 11 nations using single currency grow by 0.4 percent in 1Q
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LONDON (CNNfn) - A recovery in domestic demand in the 11 euro-zone countries in the first quarter has raised hopes of an accelerated recovery.
Gross domestic product for the single currency economies rose by 0.4 percent in the first quarter of 1999, ahead of the market expectation of 0.3 percent. The provisional figures released Monday by Eurostat, the European Union's statistics agency, show an annual growth rate of 1.8 percent.
Economists widely welcomed the figures and said the overall picture suggested a more optimistic outlook for the year as a whole. Overall domestic demand in the 11 euro-zone countries rose 0.7 percent, boosted by a 1.2 percent rise in personal consumption, a 0.9 percent increase in government spending and a 2.1 percent gain in investment.
Net exports cut GDP growth by 0.3 percentage points while inventories knocked a further 0.7 points off the growth rate.
As inventory stocks are reduced and trade recovers on the back of a weak euro and the revival in Asia, both these negative factors should stop weighing on GDP data.
"Just mechanically, if you take those two negatives away and assume a flat performance of domestic demand, you get back to 2.5 percent growth in 2000, which is why we are becoming a little bit more optimistic about things," said Darren Williams, economist at Donaldson, Lufkin and Jenrette in London.
"This bodes well for the future. Based on the stock correction it appears that domestic demand is picking up," Robert Prior, European economist at HSBC, told CNNfn.com. "The big risk to European economic recovery at the start of the year was the large stock overhang," he added.
Prior warned, however, that the data might be undermined by surprising German first quarter figures released last week, which showed domestic demand up 2.4 percent. Few economists believe Europe's largest economy is growing that fast.
"We know these figures are highly influenced by German first quarter figures, which were a little bizarre," Prior cautioned.
The euro weakened slightly from earlier levels and stood around $1.0445 in mid-afternoon trading. 
-- from staff and wire reports
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